5 Financial Considerations to Make Before Purchasing a Car

You may have recently graduated from college or landed your first job. You’re now searching for a car that satisfies your transportation needs. Whatever your circumstance, there are several things to consider before buying your first automobile, the most crucial being the financial implications of owning a car.

1. What Car Can You Afford?

While this may seem apparent, you’d be shocked at how low on most people’s priority lists, affordability falls. After all, purchasing a new automobile is fun! However, take some time to determine how much you can afford before letting the excitement of that new car smell or taking it out of the lot for a test drive cause you to make an impulse purchase.

As you create a budget, consider all the costs of car ownership. For example, according to Business Insider, you can expect to spend about $356 on repair costs yearly. You’ll get a clearer picture of what you can afford by factoring in the different costs.

2. Your Credit Store

You likely don’t have much credit built up if you’re fresh to the whole being an adult thing. However, you need to build a solid credit score because it will directly impact your interest rates if you’re financing your car. Getting a favorable interest rate can result in savings of hundreds or even thousands of dollars.

Be aware of dealership salesmen who may try to persuade you to accept a longer loan term if you lack credit or need to improve your credit score. Over the course of the term, you’ll wind up paying much more interest, which will have a detrimental effect on your finances.

3. Car Insurance Rates

After creating a short list of automobiles you want to look at, go online or call around to compare the car insurance quotes of multiple providers. It’s important to factor your monthly insurance costs into your spending plan. Besides liability insurance being required in most states, most lenders also demand that you maintain comprehensive and collision coverages (commonly known as full coverage) for the duration of the loan.

4. Understand Your Financing Options

If you don’t have the cash to pay for your first automobile upfront, you must find a way of financing the purchase. It may seem odd to shop for loans before you look for a car, but doing so will give you a better understanding of the interest rate and loan amount to anticipate when it comes time to choose a finance option.

To find the best alternative, compare your bank or credit union’s rates to those of other lenders. Get pre-approved for financing before visiting the dealership, if possible. This way, you can be sure the odds are in your favor. If you have bad or no credit, you may be better off waiting until you’ve improved your score so you get better rates.

5. Costs Other Than the Loan

As you consider the financial implication of a loan, such as the monthly payment and interest rate, remember other car ownership expenses. Consider how fuel costs may affect your monthly spending if you’re looking for a large car, such as a truck or a family-sized SUV.

Have you had your eye on a modern, luxurious sedan? Find out how much it will cost to maintain that particular make and model. You might be surprised by the price and expected frequency of oil changes and other standard repairs. For example, you should typically have your car’s tires aligned once or twice annually, but you may need to increase the frequency if your tires experience significant wear and tear, according to Tire Buyer.

You may also need to make some upgrades after purchasing the car to make it safer. According to the Department of Transportation, about 21% of motor vehicle crashes reported in the U.S. are caused by the weather. With this in mind, all-weather tires are a great investment.

The prospect of owning your first car can be exciting. However, before you can start visiting dealerships, there are some financial considerations to factor in when making your decision. Doing this will help you know if you’re better off buying a new or used car.